After last year, the home mortgage business could use a break. It will probably get one this year. ``I sure hope so. I couldn't stand another year like last year,'' says Karl Mendenhall, senior vice-president at Cameron-Brown Company, a mortgage banker in Charlotte, N.C.
After several years of mortgage rates in the low to mid-teens, 1986 saw rates slide below 11 percent, then 10 percent, then to their present level of 9 to 9 percent. That drop set off the most furious scramble for new home loans and refinancings the industry had ever seen. Tales of long delays, frustration, and even lost mortgage commitments grew more frequent as applications piled up on overworked loan processing staffs.
This year promises to be much quieter, to the relief of the mortgage companies, banks, and thrifts.
But it also promises to be a year of heavier competition within that industry for a smaller pool of home buyers and refinancers. As a result, it could be a year of greater opportunity for mortgage applicants. They will probably find some ``special'' rates, incentives, and perhaps some gimmicks that may be a bit costlier in the long run.
For most people, the most important news is that interest rates are expected to stay right about where they are. They may drop a half point or so in the spring, but that's not enough to make anyone who finds a dream house now or want to refinance feel he or she has missed the bottom by too much.
``I see rates dropping in the first quarter a little, by one-quarter to one-half of 1 percent,'' Mr. Mendenhall says. ``They'll stay there through the summer and by the end of the year we'll be back where we are today.''
``I expect mortgage rates to come down about one-quarter to one-half percent,'' agrees Warren Lasko, executive vice-president of the Mortgage Bankers Association.
``I see rates between 8 and 9, depending on the number of points people pay,'' says Forrest Pafenberg, an economist with the National Association of Realtors. Each point represents 1 percent of the loan balance. Paying an extra point or two usually results in a slightly lower rate.
With rates at or below 9 percent, many people are finding the 15-year mortgage a lot more affordable, even though the monthly payments are somewhat higher. Lenders tend to like them, too, since these loans help shorten their loan exposure in an uncertain long-term interest rate climate.
Mr. Lasko is one of those considering refinancing into a 15-year for his own home. ``Anybody with an interest rate of 11 percent or more is taking the opportunity to refinance and save,'' he says. ``I've been wrestling with that myself. I'm going into a 15-year loan at 8 percent.'' The monthly payments on his new loan, he figures, will be about 8 percent higher than they would be for a 30-year loan, ``but you cut the number of payments by 50 percent.''
But 15-year loans, which are also favored by many outside investors who buy the loans the lenders write, aren't for everyone, Mr. Pafenberg notes. That extra 8 percent could add up to several hundred dollars a year and might be invested elsewhere, he says.
If you can get a respectable return on the additional money, and you don't plan to stay in the house for the full 15 years, a 30-year loan might be better. The average family stays in one home seven to eight years, and while the 15-year loan builds up equity faster, it may not be enough to make up for the extra monthly burden.
``A 15-year mortgage is probably not for the first time home buyer,'' Lasko agrees. ``It's better for the more mature family that plans to stay in this home for several years.''
Tax reform should also be considered when choosing between a 15- and 30-year mortgage. Because a 15-year loan pays off the principal much faster, you won't have the big interest deduction for as many years as you would with the 30-year variety. But with the top tax rate dipping to 38 percent this year and 28 percent next year, no deductions, including mortgage interest, will be worth as much. This could make the 15-year loan even more attractive.
With fairly stable rates, and with much of the pent-up demand for housing now satisfied, lenders are going to be competing harder for the customers that are left. One bank in New England, for instance, is offering a program that lets mortgage applicants lock in a lower rate. Not only can a customer lock in the present rate at the time of application, but if mortgage rates continue to fall, the loan will be reviewed seven days before closing and, if rates are lower, the customer automatically gets the lower rate.
With rates expected to show little if any movement this year, this deal may not be much of a risk to the lender this year, but there could be other charges. If a bank is offering special deals, Pafenberg cautions, watch for things like higher application fees or points.
One problem from last year that should not return in 1987 is delays. Many lenders beefed up their staffs to handle the crunch in 1986 and still have most of those people on board. So instead of having to wait 8 to 12 weeks for approval, we should be back to a 4- to 6-week system.
``We added staff to cope with the volume last year,'' Mendenhall says. ``We don't anticipate as much business this year.''
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